DUBAI: Oil prices impact upon financial market

Emirati and Arab men discuss the stock rThe Dubai Financial Market, the UAE’s biggest stock exchange, said its first quarter profit slid 69 per cent as investor concerns over oil prices dampened trading volumes. The DFM, which makes most of its money on trading commissions, said net income dropped to Dh67.7 million in the first three months of the year from Dh215.1m in the same period last year. Revenue decreased 55 per cent to Dh114.5m in the first quarter compared to Dh255.6m in the same time frame last year.

“The sharp decline of oil prices in 2014 has hindered sentiment and accelerated the slowdown,” said Essa Kazim, chairman of the DFM. “I firmly believe that these are passing circumstances. For instance, oil prices are relatively stabilising near levels way above what many analysts anticipated,” he added.

The average value of daily trading in the first three months dropped 66 per cent to Dh606.4m from Dh1.7 billion in the same period last year, when stocks rallied during a bull market in the aftermath of the UAE’s upgrade to the MSCI index of emerging markets.

Dubai’s main stock index more than doubled in value in 2013 and rose as much as 50 per cent last year before a rout in the fourth quarter when a 30 per cent drop in the price of crude oil triggered a sell-off. In the first quarter, the DFM General Index dropped 6.9 per cent as oil fell 10 per cent in the same period. As oil prices rebounded in the past month however, so has Dubai’s benchmark index, which is now up 10 per cent for the year to date.

Last year, the UAE economy is estimated to have grown more than 4 per cent, even after the price of oil fell more than 50 per cent during the second half. As a result of the drop, many economists, including those at HSBC and Standard Chartered, have lowered their growth forecasts for Arabian Gulf countries this year.

Last week, the IMF cut its projections for the UAE’s growth this year to 3.2 per cent — a decrease of 0.3 percentage points against its January forecast. Still, the DFM is upbeat about future growth prospects.

“Macroeconomic indicators are positive and promising,” explained Mr Kazim. “The national economy maintains its high growth rates … as a result of the successful economic diversification policies. Furthermore, DFM is seeing intensified interest from various investor categories following its classification as emerging market.”

One sign of promise for equity markets in the UAE is that most corporate profits are holding up despite the drop in oil, which the UAE government relies on to fund most of its budget. Dividends paid out by the UAE’s leading listed companies grew at a double-digit rate to a record last year — and they are expected to do the same in the current year.

Research by the Dubai-based investment bank Arqaam Capital shows that the payouts have grown each year since 2010 as the country’s economy recovered from the global economic crisis.

This article by Mahmoud Kassem originally appeared in the UAE daily The National 

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